The Regulatory Sandbox of the Bank of Ghana.

Technology used to enhance and automate financial services is known as fintech (financial technology). Examples include the use of and development of cryptocurrencies like Bitcoin, mobile banking, mobile payment application software, peer-to-peer payment services like PayPal and Venmo, trading platforms like Robinhood, and peer-to-peer payment services like Venmo and PayPal.

Because of technology, the financial services sector has seen a growth in innovation and is always coming up with new opportunities and methods for providing and obtaining financial services.

Despite the fact that this may mainly be advantageous, not all Fintech tools and solutions have proven to be efficient and secure for customers and the industry as a whole. Since there were no formal regulatory framework models for them to fall under in the past, regulation in the Fintech sector was essentially nonexistent.

This meant that Fintech goods were being directly tested on consumers and the wider public, which presented significant dangers and difficulties. A number of Fintech products have ended up serving as cover for deeper frauds, and several have had business structures that mislead the public. These dangers result from a lack of distinct regulatory, legal, and oversight structures.

The regulator (in this example, the Bank of Ghana) had to step in to address these issues as a result of these events. You should be able to comprehend that, generally speaking, and particularly in the financial sector, the existence of numerous rules and regulations may inhibit innovation and progress.

But in order to keep up with consumer expectations and find ways to meet them, innovation is required.

Therefore, the regulator’s challenge is: “How can we maintain the quick rate of innovation while also reducing the accompanying risks?”

’Herein lies the role of the Bank of Ghana Regulatory Sandbox.

The Central Bank of Ghana, in collaboration with EMTECH Service LLC, began a regulatory and innovation sandbox experiment on February 25, 2021, in addition to establishing a Fintech and Innovation department to license and regulate Fintechs, among other regulatory steps.

This is in line with “its goal to evolve a regulatory environment that is inclusive, enables Fintechs, and fosters innovation.”

The Bank of Ghana Regulatory Sandbox is covered in detail in this article, along with some information on how the sandbox actually functions.

A regulatory sandbox: what is it?

A regulatory sandbox is a secure, monitored, and controlled environment that enables firms and entrepreneurs to test-drive recently developed financial technology without being directly subject to regulatory and supervisory constraints, facilitating their quicker entry into the market.

The idea of regulatory sandboxes is not new. The first regulatory sandbox was established in the UK in 2016 with the aim of removing unnecessary obstacles for banking and finance companies trying to innovate, thus they have actually been around for a while.

Since then, several other nations have created regulatory sandboxes, and Ghana is no different.

Consider a regulatory sandbox as a sort of playground where companies can test new ideas (products and services), business models, and technology before they are released to the public. In order to test if these new, creative products, services, and business models can be developed safely and introduced to the market, it is intended to let these enterprises “play” in the sandbox with little to no laws.

Although such inventions are not fully subject to regulatory requirements, this playground has an adult supervisor, or regulator, who allows for experimentation while directing regulation. Regulations are laxed in the sandbox to encourage creativity.

So, before a product is introduced to the market, enterprises and Fintech entities can experiment with cutting-edge financial products and services inside a clearly defined timeframe and space while being supervised by a regulator.

It’s critical to understand that the regulatory sandbox does not grant entrepreneurs a perpetual right to operate or a “free pass” to experiment on unsuspecting customers. Additionally, it is not a place where companies can test the viability of a plan or project. Finally, entrepreneurs and innovators should not take advantage of the regulator’s reputation to draw customers to their goods or services.

Why a regulatory sandbox is necessary

The goal of regulatory sandboxes is to discover the potential and hazards associated with a specific innovation in order to create the best regulatory framework that can be used to address it.

Innovation, particularly in the banking sector, benefits both firms and consumers.

Regulators, despite having the greatest interests of consumers at heart, can stifle innovation by enforcing onerous, onerous, and unreasonable regulations. Due to the financial sector’s rapid expansion, the regulatory sandbox enables the regulator to combine compliance and regulations without slowing down the pace of innovation and technological advancement.

The regulatory sandbox gives companies and entrepreneurs a chance to try new ideas on the market, but the inclusion of adequate protections protects against the negative effects of a product’s failure and reduces risks while guaranteeing the stability of the financial system.

Additionally, it has been claimed that regulatory sandboxes are especially helpful in encouraging the innovation required to remove obstacles to financial inclusion. (The term “financial inclusion” refers to people and businesses having access to practical financial goods and services that are affordable, suit their needs, and are provided in a sustainable and ethical manner.)

What is the actual operation of the sandbox?

All licensed financial institutions, including banks, payment service providers, and financial holding companies, as well as unlicensed Fintech start-ups with novel goods, services, or business models that satisfy the regulatory sandbox requirements, are welcome to participate in the Bank of Ghana Regulatory Sandbox.

The sandbox is only used for a short period of time and only in a small portion of a sector or area due to time and scope limits. To avoid wasting valuable resources on matters that can be handled outside of the sandbox, it is crucial to specify the scope of the project.

As a result, it would mostly concentrate on more recent specialized inventions that may or may not comply with the current regulatory system. The regulator can decide on the best regulatory response for these products after such innovations are accepted into the sandbox.

Fintechs must fulfill the requirements in order to be eligible for participation in the sandbox. Therefore, in order to be considered for the sandbox environment, inventions must fit into one of the following categories:

1) Modern regulations do not explicitly or indirectly cover new digital company models.

2) New and inexperienced financial service technology.

3) Disruptive and innovative financial service offerings that could help solve the ongoing problem of financial inclusion.

In light of this, a product, service, or business model is not included in the sandbox if it adds no substantive value to already existing payment and financial services solutions or if it allows for the development of an adequate regulatory response without the need for market testing.

The Bank of Ghana has also detailed the precise standards under which innovations would be given priority. As a result, products and services utilizing blockchain technology, remittance products, crowdfunding products and services, e-KYC platforms, RegTech (regulatory technology), SupTech (supervisory technology), digital banking, and products and services focusing on women’s financial inclusion would be given preference.

These products’ live testing experiments are carried out under the regulator’s supervision in a supervised setting. The innovations may then be introduced to the live market once their safety has been established and the proper regulatory reaction has been established.

Businesses and entrepreneurs would need to submit a formal application to the Bank of Ghana in order to be allowed access to the sandbox. On the Bank of Ghana website, the application must be submitted electronically.

The following information must be included in the application:

1.The business profile (e.g. incorporation documents).
2.Information on the ownership and governance structure.
3.Information about how the company model or product would protect and benefit customers.

Additionally, the applicant must show that it is prepared to test its service, product, or business model in the sandbox and must provide the Bank of Ghana with a recommended testing strategy as well as an exit strategy.

The Bank of Ghana evaluates the application after submission before allowing it access to the regulatory sandbox.

The regulator will decide which rules need to be observed once the company or inventor exits the sandbox after participating in it. As a result, after a successful trial and while leaving the sandbox, the sandbox entity is required to completely adhere to all applicable legal and regulatory obligations.

Advantages and dangers of the sandbox

A regulatory sandbox has a number of advantages.

One of these advantages is that it provides a foundation of data for regulation. Having a regulatory sandbox in place gives the regulator access to all the data they need to decide how to best regulate new services and products that are entering the finance sector. Regulators can use the input from the live tests done in the sandbox to inform their regulatory response to these products and developments.

A business model’s customer appeal can be determined via the sandbox, which also enables innovators the chance to test-drive their goods and services in a safe setting while controlling risk. This may lower the cost of innovation and make it easier for new investors to enter the market.

The dangers associated with innovations that may result in hazardous goods and services are likewise protected from the consumers. Additionally, when innovators are not overburdened with rules and restrictions, customers gain from the cutting-edge goods and services that are created.

On the other hand, despite the fact that a regulatory sandbox benefits the Fintech industry, there are some possible risks involved. Sandboxes, for instance, have the ability to “muddy” the market, making it challenging for buyers and investors to determine precisely which products are secure and dependable.

Furthermore, sandboxes run the risk of favoritism in the regulatory process—or at the very least, the appearance of it. Sandboxes may increase competition, which is a good thing. It could, however, lead to worries about an unfair playing field between businesses and inventors inside the sandbox and those outside of it.

This frequently occurs when innovators feel they may be competing on an uneven playing field and explicit rules and eligibility criteria for selection are not couched in a transparent manner.

Finally, despite the noble intentions behind the creation of a regulatory sandbox, some economists have warned that it is feasible for abuse and may even “play the role of gatekeeper, slowing down or even preventing innovation.”

Sandboxes are an important addition to the finance sector despite these concerns, and regulators must work to make them as fair, transparent, and effective as they can be.


The Fintech industry is constantly changing, and if this rate of development and expansion is unregulated, consumers face grave risks. Fintech regulators have had to strike a balance between reducing these risks and allowing for innovation without stifling it with numerous rules and limitations.

One of these techniques is the use of a regulatory sandbox, where regulators can carefully monitor new innovative digital products, services, and business models in a live testing environment. This approach has the dual benefits of protecting consumers and allowing innovators to bring their products to market more quickly, as well as enabling the regulator to develop the appropriate regulatory response. The obvious objective is to actively develop the regulatory environment so that it can keep up with the rate of digitalization by using regulatory sandboxes to provide spaces for testing innovative goods and business models.

They can be effective tools for fostering innovation in the finance sector while also reducing associated risks if properly planned and implemented.

Jojo is a paralegal in the Corporate and Commercial Practice Group at M&O Law Consult, and Emmanuel is a practicing attorney who is in charge of the Real Estate and Infrastructure practice area. He holds a license from the Ghana Association of Restructuring and Insolvency Advisors as an insolvency practitioner.


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